Re-appointment of Independent Directors: An Analysis

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An Independent Director is a director in a company different from the Managing Director and the Full-time Director. This Director takes the role of a guide and coach for the company and essentially acts as a watchdog for risk management.The role of an Independent Director is not limited to just protecting the interests of shareholders or ensuring that corporate governance policies are adhered to. This type of professionals also must provide advice on how to achieve business goals and guide how to deal with any business challenges that may arise.Below, we will look at the process for re-appointment of Independent Directors under the rules set out by the Companies Act (2013) and the latest SEBI (Securities Exchange Board of India) regulations.

The Role of an Independent Director

Independent Directors are an essential part of any company’s governance system. They provide an external perspective on the company’s operations and help to mitigate risk by ensuring that the board is aware of potential risks and how they can be mitigated.

Two key areas define the role of the independent director:

1. Independent director oversight: This ensures that the board comprises people with a range of skills and experience. Shareholders appoint Independent directors at general meetings, and unlike non-executive directors, they do not receive any salary or other benefits from their roles.
2. Monitoring risk management: Independent directors often sit on the audit committee, which monitors a company’s financial reporting and risk management processes. They also have access to confidential information about the company’s finances and operations, which allows them to spot potential risks before they become serious problems for shareholders or employees alike.

Requirements and Requisites For Re-appointing Independent Directors

Here’s a breakdown of the requisites for the appointment of Independent Directors. They also apply when reappointing the same:

1. Individuals cannot be an ID (Independent Director) if they are disqualified under Section 164 of the Companies Act
2. Independent Directors must follow Schedule IV’s provisions of the same Act
3. The number of Independent Directors cannot exceed the limit as per Section 165(1).
4. An ID can hold office for a term of five years. However, they can be reappointed to office by passing a Special Resolution by the Board of Directors
5. An individual cannot hold the office of Independent Director for more than two consecutive terms (a total of 10 years). They can, however, be reappointed to the office after the passing of three years from the expiry of their last term
6. During those three years, the individual cannot be associated with the same company in any direct or indirect capacity
7. Any vacancy in the post of Independent Director created by the resignation or removal of the same has to be filled by the listed entity within 3 months from the start of the vacancy. However, if the requirement of IDs on the Board of Directors is fulfilled without having to fill the vacancy, the appointment of a new Independent Director is not necessary
8. The company shall not appoint an Independent Director who had previously resigned as an Executive Director on its Board of Directors or the Board of an associated company or group until the passing of 1 year from the resignation date of such director.

Procedure for Re-appointment of Independent Directors

• Obtain Consent

The first step for reappointing an Independent Director is to obtain written consent from the individual through a Form DIR-2 and a Form DIR-8 (Intimation by the same about his disqualification) to the company. They also have to submit to the company a declaration stating he fulfils the conditions for the office of Independent Director.

• Obtain Form MBP-1

The individual shall fill out and submit Form MBP-1 to the company. This states that they have no interest in the company, related subsidiaries, or parent groups.

• Recommendation From the Nomination and Remuneration Committee

Before the individual can be reappointed to their office as an Independent Director, the Nomination and Remuneration Committee has to meet and pass a recommendation for the re-appointment of the same as an ID by the Board of Directors.

• Convene a Board of Directors Meeting

At a Board of Directors meeting, the necessary Board Resolution has to be passed for reappointing an Independent Director. As the re-appointment of such a Director is subject to shareholders’ approval, a General Meeting also has to be convened and their authorisation granted. Lastly, the company has to submit the disclosure of the re-appointment within 24 hours of the Board Meeting and post it on their website within 2 working days.

• Convene a General Meeting

The notice of a General Meeting has to be given 21 days before the actual date of the meeting and delivered to the Directors, Members, Auditors, Secretarial Auditor, Debenture Trustees, and others in the company who are entitled to receive the notice. The notice should specify the meeting’s time, date, and address, along with a statement on the business to be conducted there.

Once the General Meeting is held, a Special Resolution has to be passed for the re-appointment of the Independent Director. Once passed, a letter of appointment is to be provided to the proposed individual, and the proceedings of the GM passed to the Stock Exchange before the passing of 24 hours.

• File Form DIR-12 With the ROC

The next step is to file Form DIR-12 with the ROC. This is a Return of Appointment of Directorship statement and must be filed within 30 days of the initial re-appointment of the individual as an Independent Director. These documents also have to be attached to Form DIR-12:

• A certified true copy of the Special Resolution;
• Details of individual’s interest in other entities through Form MBP.1;
• DIR-8 Declaration by Director;
• DIR-2 Consent to Act as Director;
• The Letter of Appointment;
• Declaration of Independence under Section 149(7).

1. File Form MGT-14 With ROC

Within 30 days of passing the Special Resolution in a General Meeting, Form MGT-14 has to be filed with the Registrar of Companies. The fee specificed in the Companies Rules, 2014, also has to be provided with the same, along with the following documents:

• Certified True Copies of the Special Resolution, along with an Explanatory Statement;
• Shorter Notice Consent Letters from the members (only if the meeting was convened at shorter notice);
• Copy of the Notice of the meeting sent to members;
• Copy of the General Meeting’s Attendance Sheet;
• Other applicable attachments.

2.   Make Entries in the Register of Directors

After the Form has been filed, the last step is to make the entries required in the Register of Directors and Key Managerial Personnel through Form MBP-4.

Conclusion

Re-appointing, an Independent Director of a company , requires many professionals like chartered accountants and legal counsel that can advise you on the proper procedure. If you’re having difficulty finding these professionals, you should check out Vakilsearch, India’s most extensive, most accurate database of skilled legal professionals.With a repository that spans thousands of individuals and firms all over India, we are best positioned to help you navigate the waters of corporate law while ensuring you’re fully compliant with the various rules and regulations!